Comprehensive Analysis of UK Business Taxation: VAT and More

This report provides a comprehensive overview of business taxation in the UK, focusing on self-assessment tax, VAT procedures, and corporation tax liabilities. Task 1 details the nature and purpose of self-assessment tax, determination of worker tax status, taxable amount calculations, and ethical considerations. It also evaluates taxpayer obligations and implications of non-compliance. Task 2 discusses UK tax law implications for both unincorporated and incorporated businesses, determination of capital gains taxes, chargeable gains subject to corporation taxes, adjusted profit calculations, and corporation tax liabilities. Task 3 describes VAT registration and administration procedures, computes tax under VAT schemes for small businesses, provides examples of VAT liability calculations, and discusses potential VAT penalties. The report includes practical examples and scenarios to illustrate key concepts and computations, offering valuable insights into the complexities of the UK tax system. Desklib provides access to this and other solved assignments for students.

Business Taxation
UNIT 603/4848/3
Learning Development Training

Table of Contents
INTRODUCTION------------------------------------------------------------------------------------------------------------------------------- 3
TASK 1------------------------------------------------------------------------------------------------------------------------------------------- 4
NATURE AND PURPOSE OF SELF-ASSESSMENT TAX--------------------------------------------------------------------------------------------4
DETERMINATION OF TAX STATUS OF WORKERS------------------------------------------------------------------------------------------------5
DETERMINATION OF TAXABLE AMOUNTS AND CALCULATION OF TAX PAYABLE FOR A SCENARIO.-----------------------------------------7
COMPLETED SELF-ASSESSMENT TAX RETURN-------------------------------------------------------------------------------------------------10
ETHICAL ISSUES ARISING AT THE TIME OF PERFORMING TAX WORK-------------------------------------------------------------------------10
EVALUATION OF OBLIGATIONS OF TAX SYSTEM IMPOSES ON TAXPAYER AND IMPLICATION FOR TAXPAYER-------------------------------12
OF NON COMPLIANCE--------------------------------------------------------------------------------------------------------------------------12
TASK 2------------------------------------------------------------------------------------------------------------------------------------------ 13
DISCUSSION OF UK TAX LAW AND ITS IMPLICATIONS FOR UNINCORPORATED AND INCORPORATED-------------------------------------13
BUSINESSES-------------------------------------------------------------------------------------------------------------------------------------13
IMPLICATION OF UK TAX LAW FOR INCORPORATED BUSINESSES---------------------------------------------------------------------------14
IMPLICATION OF TAX LAW FOR UN-INCORPORATED BUSINESSES.--------------------------------------------------------------------------15
DETERMINATION OF CAPITAL GAIN TAXES PAYABLE AND CHARGEABLE GAINS SUBJECT TO CORPORATION-------------------------------15
TAXES.------------------------------------------------------------------------------------------------------------------------------------------15
Determination of Capital Gain Tax :--------------------------------------------------------------------------------------------- 16
DETERMINATION OF CHARGEABLE GAIN SUBJECT TO CORPORATION TAX------------------------------------------------------------------18
CALCULATION OF ADJUSTED PROFIT FOR CORPORATION TAX PURPOSES.------------------------------------------------------------------18
CALCULATION OF CORPORATION TAX LIABILITIES--------------------------------------------------------------------------------------------22
TASK 3------------------------------------------------------------------------------------------------------------------------------------------ 23
DESCRIBING THE REGISTRATION AND ADMINISTRATION PROCEDURES FOR VAT-----------------------------------------------------------23
COMPUTING TAX UNDER VAT SCHEMES FOR SMALL BUSINESS ORGANISATIONS----------------------------------------------------------26
Tax under flat rate:------------------------------------------------------------------------------------------------------------------ 27
Cash accounting scheme----------------------------------------------------------------------------------------------------------- 28
Annual accounting scheme-------------------------------------------------------------------------------------------------------- 28
PROVIDING EXAMPLES OF CALCULATION OF VAT LIABILITIES------------------------------------------------------------------------------29
DISCUSSING VAT PENALTIES THAT CAN ARISE-----------------------------------------------------------------------------------------------32
CONCLUSION--------------------------------------------------------------------------------------------------------------------------------- 34
REFERENCES---------------------------------------------------------------------------------------------------------------------------------- 35

APPENDIX------------------------------------------------------------------------------------------------------------------------------------- 38
ADDITIONAL INFORMATION-------------------------------------------------------------------------------------------------------------------39
Investment Income------------------------------------------------------------------------------------------------------------------ 39

INTRODUCTION
Taxation is basically referring as an act of levying or imposing tax on individual or business by a
taxing authority. Tax is the main source of revenue for the three level of government of UK such
as central government and local government. In United Kingdom, Central government revenues
come primarily from income tax, national insurance contribution, value added tax, corporation
tax and last fuel duty. Grants from the federal government, business rates in England, Council
Tax, and, increasingly, fees and levies such as those for on-street parking, are the main sources
of revenue for local governments (Budak and James, 2018).
In the United Kingdom, around 32 million individuals pay taxes. Different UK tax regulations,
on the other hand, influence how income tax is collected. Scotland's tax bands differ somewhat
from those in England, Wales, and Northern Ireland. Income taxes, property taxes, capital gains
taxes, UK inheritance taxes, and VAT are all examples of basic UK taxes (van de Ven and
Hérault, 2022). Many of them are progressive taxes, which means that individuals with higher
earnings pay more. England, Scotland (though there are some special distinctions due to
Scotland's distinctive legal system), Wales, Northern Ireland, and several of the smaller islands
off the British coast are all covered by the British fiscal system. It also covers oil drilling
platforms in British territorial seas, while the Channel Islands and the Isle of Man are excluded.
The present report will cover the three task and in each task the detail discussion of taxation will
be taken place. In the first task, the report will cover a booklet stating information on Self-
Assessment Taxation. The report will also calculate the corporate tax liabilities based on own
chosen scenario or figures in order to include the deep information on taxations (Langenmayr
and Liu, 2020). Further, in the second task, the report will present the corporate tax information
along with the practical example or problems. Lastly, the third task of the report will cover the
written booklet discussing the Vat return and computation of tax under VAT scheme.

TASK 1
Nature and Purpose of Self-assessment tax
Self-assessment tax is known as any pending tax liabilities that need to be paid by the individual
at the end of the financial year after evaluating their total taxable income, reducing deductions
and taxes paid. This is a system HM Revenue & Customs uses to collect Income tax. Generally,
the tax is deducted automatically from wages, pensions and savings. People and business with
other income including various covid grants must report it in a self-assessment return. (gov.uk).
All resident of UK need to maintain and follow this regulation. The nature of self-assessment tax
is such that it helps the individual or businesses to pay balance tax on his assessed income after
the TDS and advance tax. The purpose of the self-assessment tax is to help the taxpayer to pay
any of the tax dues after the payment of advance tax that they need to pay before the end of the
financial year under the self-assessment tax (Holland, Lindop and Abdul Wahab, 2021). This is
paid by salaries' taxpayer, self-employed tax payer, corporate etc.
As the UK's tax, payment, and customs agencies, it taxes both domestic and foreign incomes of
everyone resident in the country. Employment and benefits from the job, profits from one’s own
business, state benefits, pensions, rent, interest from savings, dividends from a trust, and other
sources of income are all possibilities.
HM Revenue and Customs (HMRC) is in charge of tax administration and collection in the
United Kingdom. In 2020/21, the UK's tax collections were estimated to be at £584.5 billion,
down 7.7% from the previous tax year.
The self-assessment tax is generally computed on income from all sources and acts as a final
option for the tax payer to pay the whole tax. Any tax due because of the self-assessment tax
return must be paid by 31st January after the tax yearends. For example, the tax due for the tax
year 05.04.2021 must be paid by 31st January 22. The HMRC may charge late payment interest
and/or penalty if paid later than 31st January. In this way, it can be said that the nature and
purpose of self-assessment tax is to help the government of UK to collect the taxes from the
taxpayer and enhance the revenue of the government. The self-assessment tax is basically
progressive in nature which means the higher the income of taxpayer, the high the tax payment

for them. It is computed by deducting the tax paid at source or advance tax from the total tax
liability of individual. For example, total tax liability of an individual is £25,000 and the advance
tax paid by that individual is £22,500. In such case, the additional £2,500 tax need to be paid by
that individual.
Determination of tax status of workers
In order to determine the tax status of workers, first it is important to understand the employment
status of the worker. It is because how worker is taxed depends on the employment status of the
worker, employed or self-employed for tax and national insurance contribution. HMRC has
introduced Check Employment Status for Tax (CEST) tool in order to understand and determine
the employment status of worker for tax as well as NIC purposes (Liu, 2018). This tool provides
the following determination based on the information provided by worker:
 Employed for tax purpose
 Self-employed for tax purpose
 Off-payroll working rule apply
 Off-payroll working rule do not apply.
Generally, the contract between employer and worker determines the status of the worker is
employed or self-employed. There are also other factors as below that play their role to
determine the status of the worker if they fall under employment or self-employment.
 Mutuality of Obligation: When an employer is under an obligation to provide a work
and pay for that work and the worker is under the same obligation to accept the work and
perform the work as given, this is usually a relation of employment. Contra to this if
worker is self-employed if they will not guarantee of work and even if work is given to
them, they are free to accept or refuse the work.
 Right of control: if worker is guided or told how to do the certain task then it is more
likely to form an employment. On the other hand, self-employment personal will have
their own control on how the task will be completed and the deadline for completion of
that task.
 Provision Equipment: normally, an employee is not responsible for using their own
equipment to perform a duty. On the other hand, self-employed person will normally be
responsible for providing the necessary equipment to complete the task accepted.

 Right of providing Substitution: If an employee, for whatever reason, unable to
perform their duties, they cannot supply a substitute to perform that duty. On the other
hand, self-employed people are free to provide substitute to complete the duty.
 Financial Risk: Normally, an employee is not responsible for profit or loss from direct or
indirect result of the performance of the duty. On other hand, self-employed people are
responsible for the result of the performance of the duty, they may get profit or suffer a
loss.
 Payment: Normally, an employee is paid by one employer and on-one else. On the other
hand, if a worker typically performs services for a number of different clients, they are
self-employed.
In summery, worker is considered as employed by you if most of the following statements apply
to them;
 you can tell them what work to do, as well as how, where and when to do it
 they have to do their work themselves
 you can move the worker from task to task
 they are contracted to work a set number of hours
 they get a regular wage or salary, even if there is no work available
 they have benefits such as paid leave or a pension as part of their contract
 you pay them overtime pay or bonus payments
 they manage anyone else who works for you
The worker is considered as self-employed if most of the following statements apply to them;
 they can hire someone else to do the work you have given them, or take on helpers at
their own expense
 they can decide what work is done and when, where, or how it is done
 you pay them an agreed fixed price – it does not depend on how long the job takes to
finish
 they can make a loss or a profit
 they use their own money to buy business assets, pay for running costs and so on
 they are responsible for putting right any unsatisfactory work, at their own expense and in
their own time
 they provide significant tools and equipment that are fundamental for their work
If the worker is an employee then you have important responsibilities including deducting tax
and national Insurance from their pay and paying this deduction to HMRC.

If a worker or individual, that provide service to various customers on their own name on a
regular basis and the turnover from its services is more than £1,000 then in such case such
worker is considered as self-employed for the tax purpose and they need to file tax return under
self-employment status. The self-employed worker in UK pay Class 2 NIC in case if their profit
is more than £6,515 during the financial year 2021-22 (£6,725 for tax year 2022-23). In addition
to class 2 NIC, they also pay class 4 NIC in case if their profit is more than £9,568 for 2021-22
(£9,880 for 2022-23) (www.gov.uk).
Determination of Taxable amounts and Calculation of Tax Payable for a scenario.
For the purpose of computation of taxable amount and tax payable the scenario is chosen is self-
employment. For example, Mr A is a self-employed individual that worked independently at
home. Their self-employed turnover for year 2021-2022 is £60,670. He incurs business
proportion of light, heat and telephone is £880, print & stationary £680, Professional
Subscription £822, Insurance 572, software £677, new computer & chair purchased for £2,455
and Motor expenses for the year ended 5 April 2022 was £3,582 out of which only 40% relates
to business use and remaining 60% is of private (Steenbergen and Weber, 2022). The motor
expense is for the use of car (Co2 emission 105g/km ) Mr A is using in the business that was
purchased in May 2018 with brought forward value of £6,000 as at 06.04.2021. For the tax year
5th April 2022, he also received bank interest income from UK banks £1,110, dividend from
Tesco shares £548 and overseas share dividend £98. Mr A has also contributed into a pension
scheme for £4,800 where basic tax relief has been claimed by the provider and made UK charity
of £550.

Calculation of Taxable Amount:
Particular (£) Amount (£)
Self-employed Turnover 60,670
Total assessable income 60,670
Allowable Expenses:
Heat, light and telephone (880)
Print & stationery (680)
Professional subscription (822)
Insurance (572)
Software (677)
Motor expenses (Business only £3,582 x 40%) (1,433)
Less: Total allowable expenses (5,064)
Net Trading profits (before capital allowances) 55,606
Less: Capital Allowances* (see detail below) (2,887)
Taxable Trading profit / Taxable amount 52,719
Calculation of Capital Allowances:
Computer
& Chair
Motor Car Personal Use
60%
TOTAL
Written Down Value B/F £6,000
Purchase £2,455 -
Annual Investment Allowance
(100%)
(£2,455) - £2,455
WDA (Main rate 18%) (£1,080) £648 £432
WDV C/F - £4,920 - £2,887

Calculation of tax payable:
Income received (before tax taken off)
Profit from self-employment £52,719.00
Dividends from foreign companies £98.00
Interest from UK banks, building societies and
securities etc. £1,110.00
Dividends from UK companies £548.00
Total income received £54,475.00
minus
Personal Allowance £12,570.00
Total £12,570.00
Total income on which tax is due £41,905.00
How I have worked out your Income Tax
Your basic rate limit has been increased by £6,000.00 and £688.00 to £44,388.00 for pension payments
and gift aid payments.
This reduces the amount of income charged to higher rates of tax.
Pay, pensions, profit etc. (UK rate for England and Northern
Ireland)
Basic rate £40,149.00 x 20% = £8,029.80
Savings interest from banks or building societies, securities etc.
Basic rate band at nil rate £1,000.00 x 0% = £0.00
Basic rate £110.00 x 20% = £22.00
Dividends from companies etc.
Basic rate band at nil rate £646.00 x 0% = £0.00

Total income on which tax has been charged £41,905.00
Income Tax charged after allowances and reliefs £8,051.80
plus Class 4 National Insurance contributions
£40,702.00 x 9% = £3,663.18
£2,449.00 x 2% = £48.98
Plus Class 2 National Insurance Contributions £158.60
Total Class 2 and Class 4 National Insurance contributions due £3,870.76
Income Tax, Class 2 and Class 4 National Insurance contributions due £11,922.56
Exemption from NIC: The following self-employed individual need not pay NIC are as follows:
 People under the age of 16 at the beginning of the tax year of assessment are exempt
from Class 4 NICs (Regulation 93 SS(C)R 2001).
 People over State pension age at the beginning of the year of assessment (Regulation
91(a) SS(C)R 2001). However, a person who attains State pension age during the tax
year of assessment remains liable for Class 4 NICs for the whole of that year.
 Trustees, guardians etc of an incapacitated person who are liable to tax under
ITTOIA2005/S8, are exempted from Class 4 NICs on that income under
SSCBA92/SCH2/PARA5.
Completed self-assessment tax return
Please refer to completed self-assessment tax return 05.04.2022 attached.
Ethical issues arising at the time of performing tax work
Tax Practices requires the compliance of ethical framework with the aim that the taxpayer will
not get liable for any tax avoidance as well as tax planning. The nature of tax practice presents a
number of unique ethical issues which are as follows:
Conflict of Interest in tax practice: This is one of the most significant ethical issue
which arises in tax practice. The conflict of interest mainly arises at the time when a professional
undertakes a multi-party tax representative. In the situation of multi-party representative the
ethical issues faced by tax practitioner is that they fail to comply with the confidentiality and
integrity principle while performing their tax work or not (Wessels-Ridder, 2021). It is the prime
duty of tax professionals that they should not disclose confidential information of one client to

another client while doing their tax work or preparing their tax return. Hence, one of the ethical
issue for tax professional is conflict of interest and confidentiality.
Tax Avoidance: Every company in the present time wants to minimize its tax liability
through proper tax planning. But this became one of the ethical issue when tax practitioner or
firms instead of using ethical way started using aggressive and unethical way to reduce the tax
liability of its client. Providing unethical tax avoidance strategies to the company is one of the
ethical issues. For example, in UK Public Accounts Committee has put allegation on tax firms
that they provide aggressive and unethical tax avoidance practices to the multinational
companies such as Amazon, Facebook, Google and Starbucks in order to reduce or eliminate
their tax expenses or cost. Hence, it can be said that tax aggressive tax avoidance in illegal
manner is one of the ethical issue that arises at the time of performing their tax.
It is because the tax professional are highly pressurized by their clients that they do not
want to pay tax, and they should adopt strategies to reduce their tax amount (Schiavone, 2020).
The example of tax avoidance includes use of overseas tax heaven or shift of local income to
foreign countries in order to pay nil or low tax rate in domestic country. Tax evasion is totally
different from tax avoidance because tax evasion is considered as fundamentally illegal action.
Recording of each client return requirement and retention: This is another most
significant practice ethical issues that mainly arises at the time of preparing tax return or working
out client tax computation. This indicates that tax professionals need to maintain its clients return
and retain it within their firm via proper record keeping. It is because on the request of client, the
tax practitioner can promptly return or provide any or all record of the client that have to be
required to comply with federal tax obligations. At the time of performing the tax work, adoption
of retention policy is one of the major or most important step that have to be followed by each
and every tax practitioner in UK. Further, the ethical issues faced by them is protecting the
confidential information of the clients (Panikian and et.al., 2021). Under this retention policy, the
tax professionals are required to keep record of all the original document of client and it is their
duty that they will store it in electronic form with strong password. Here, the small or even a
large dispute over fees between the client and tax practitioner would not allow tax professional to
disclose clients information in public. They cannot take sept back from their responsibility.
Hence, it can be said that, while performing the tax work and retaining client records, the
discloser of client information, demanding unreasonable fees or charges is an ethical issue.

Knowledge of error: This is an ethical issue because for tax practitioner because many
time tax professional do not convey the information regarding the error in the current or previous
tax return of client even they have knowledge of such error. It is an unethical behaviour of tax
professional that they do not inform the tax authority about taxpayer mistake and error discover
during tax calculation, audit and tax return filing because of the taxpayer has refuses them to do
so. It is an ethical issue that arises at the time of tax work because there are many clients which
demand the tax preparer to not to disclose the error or mistake to tax authority in order to keep
their tax expenses low (Advani, 2022).
Evaluation of obligations of tax system imposes on taxpayer and implication for taxpayer
of non compliance
In United Kingdom, HMRC and government has launched tax system which is imposed on
taxpayer which they are obliged to follow and comply on a regular basis. In UK, taxpayer such
as an individual and business entity are obliged to pay taxes to federal or local government. The
income tax system is imposed on self-employed and individual taxpayer while on the other hand,
the corporate tax system is imposed on corporate taxpayer of UK. The income tax is levied at
progressive rates in UK which indicate that with the increase in the taxable income of individual
or self-employed, their tax expenses will also increase. In simple term, this means that the higher
rate of income tax is applied to higher bands of income (Advani, Ooms and Summers, 2021).
The tax is charged on taxable income not business income. The corporate or VAT tax in UK is
regressive in nature where all businesses or individual need to pay tax at same rate despite
different band of income. The UK tax system has imposed obligation on the taxpayer of UK that
they should pay taxes, withholding, complete certification and reporting requirement, claim
exemption and refund and other related expenses of the fund.
A reasonable tax system is key to building a fairer society. Everyone, from individual to the
largest companies, must pay fair share towards vital public services. The UK’s tax gap – a
difference between what is owed and what HMRC actually collect – is one of the lowest in the
world and it has reached to nearly 6%. Although, majority tax payers pay their fair share of tax,
there are some who try to break the rules and other who enter into avoidance schemes or

aggressive tax planning arrangements. In order to tackle these minority group, government have
introduced more than 100 measures since 2010. Since 2010, the HMRC’s efforts have collected
and protected an additional £160 billion. The implication of non-compliance of tax rule on the
tax payer is in the form of penalties imposed on them. It means in the case when UK taxpayer do
not comply with the rules and regulations set by HMRC and government, then the penalties in
the form of financial, criminal as well as both is imposed on UK taxpayer. In UK, majority of
cases of tax fraud and tax evasion is basically dealt via HMRC Civil procedure (Petit and et.al.,
2021). HMRC will only prosecute or impose penalty on tax payer when they knew that the
taxpayer have committed any tax violation offence and it is not in the public interest. Hence, it
can be said that the implication of non-compliance of tax rule on taxpayer is that they need to go
through two stage test of procedure such as evidential test as well as the public interest test.
TASK 2
Discussion of UK Tax Law and its implications for unincorporated and incorporated
businesses
In United Kingdom, HM Revenue and Custom (HMRC) is liable or responsible for
administration and collection of taxes from the various taxpayer's such as individual, corporate
and not for profit organization. In the year 2020 – 2021, the total tax receipt is around £584.5
billion which is basically 7.7% decrease as compared to previous year tax receipt. The main
sources of taxes for the central government of UK is income tax, corporate tax, capital gain tax,
inheritance tax, insurance premium tax, environmental taxes, value added tax (VAT), custom
duty, excises duty and stamp, land, petroleum revenue taxes (Kasum, Sanni and Fagbemi, 2019).
Individual in UK get a personal allowance of £12,570 (for 2022-23) as a tax-free income on
which the individual need not pay taxes.
There are basically two types of business such as incorporated business and unincorporated
businesses. The incorporated business are the businesses that register itself under the Companies
Act, 2006. The incorporated posses separate legal identify and are total distinct from its owner.
For example, limited company. While on the other hand, unincorporated business are the

businesses of UK that have not registered in companies Act, 2006 and does not possess a
separate legal identify. For example, sole proprietorship, partnership and family trust. The
implication of federal tax over incorporated and unincorporated business are different which
have to be understood by the tax practitioner deeply. Under UK tax law, the incorporated
businesses such as sole trader need to pay income tax based on the taxable profit. The taxable
profit is computed based on assessable income minus allowable deductions as well as personal
allowances (Ali, Rangone and Farooq, 2022). Also, the sole trader need to pay Class 2 as well as
Class 4 National Insurance Contribution (NIC) in addition with the income tax. The partnership
and family trust are also considered as unincorporated businesses. On the other hand,
incorporated business only pay corporation tax on their profit, they do not pay national insurance
on the profit.
Implication of UK Tax law for incorporated businesses
Corporation tax in the UK is the tax which is levied on limited company and any foreign
company with the UK branch or office. The corporate tax is one of the largest source of tax
revenue for the government of UK. The corporation tax rate is one of the lowest in the word at
19%. At spring budget 2021, the government announced an increase in the Corporation Tax main
rate from 19% to 25% for companies with profit over £250,000 together with the introduction of
small profit rate of 19% with effect from 1 April 2023. The small profit rate will apply to
companies with profit of not more than £50,000. As per the current corporate tax rule, all the
incorporated companies need to pay the tax on its annual profit at the rate 19%. In order to
compute the corporate tax, the federal tax law has signified that taxable income should be
considered different from business income (Überbacher and Scherer, 2019).
Under UK tax law, the taxable profit for the purpose of corporate tax includes income the
company or association will generate or make from its business activities such as trading profit,
investments and also from sale of assets more than its cost price such as chargeable gains.
Further, it also involves that in case if the company is based in UK then they need to pay tax on
income or profit from UK as well as abroad. While on the other hand, if the company is based
outside UK, then they need to pay taxes on profit from its UK activities only.

Implication of Tax Law for UN-incorporated businesses.
Unincorporated businesses are the businesses which does not get themselves registered under the
companies act, 2006 of UK. This includes sole proprietorship, partnership and trust which pay
taxes as per different rules and with different rates. The incorporated company pay taxes at flat
rate while the unincorporated companies pay taxes at different rate depending total taxable
income. For example, as per UK tax law, sole traders pays the tax on their profit through annual
self-assessment scheme run by HMRC at 20%, 40% and 45%. Also, sole traders in UK are
allowable to claim personal allowances of £12,570 on which they need not pay any tax. Sole
proprietorship basically represent more than 50% of the total UK private sector businesses. They
are the self-employed personnel which pays tax under the self assessment head and need to file
the self assessment tax return (Jacob, 2022). The partnership business distribute its partnership
income between its partners as per their capital percentage or sharing percentage. The family
trust also pay the tax via self-assessment and distribute the net income among the beneficiary.
The tax rule for incorporated and unincorporated businesses in UK is different from each other
as the incorporated businesses pay tax at flat rate while on the other hand, the unincorporated tax
professional pay tax at the slab rate for individual income tax.
Determination of capital gain taxes payable and chargeable gains subject to corporation
taxes.
You need to pay Capital Gains tax when you sell an asset, or an asset is deemed as sold if your
total taxable gains are above your annual capital gain tax allowances for individuals. However, if
the asset is sold by a limited company (incorporated business), it is a chargeable gain which is
subject to a corporation tax. A limited company does not get capital gain tax allowances. The
capita gain tax for individual is based on if they are higher taxpayer or basic taxpayer and type of
asset sold. For example, capital gain tax rate is 18% for basic tax payer and 28% for higher tax
payer if a residential property is sold while 10% for basic taxpayer and 20% for higher tax payer
if any other asset than residential property is sold. There are also various reliefs available for the
residential property sold by individual which was used for rental business.

Determination of Capital Gain Tax :
Mr B and Mrs C purchased a flat owned equally (50% -50%) on 01.08.2013 for £99,999 and
paid legal fees £780. They used this flat as main accommodation till 31.03.2015. The flat was
rented out on 01.04.15 until it was sold on 31.03.2021 for £145,000. Mr B and Mrs C paid legal
fee to sell £1,363, Agent commission £2,043 and Accountancy fee £450 for professional advise.
Assuming Mr B and Mrs C are basic taxpayer, they pay capital gain tax as below.
To calculate capital gain from the above transaction, it will be necessary to determine the
following.
 Disposal proceeds
 Acquisition cost
 Allowable expenditure
 Indexation allowances up to 31 December 2017 (allowable only for an incorporated
business)

Prop. Purchased: 01.08.2013
Prop. Sold: 31.03.2021 for 92 months
DATE DETAIL £ £
01.08.2013 PROPERTY PURCHASED 99,999.00
ADD: LEGAL COST 780.00
TOTAL ACQUISITION COST (A) 100,779.00
31.03.2021 PROPERTY SOLD 145,000.00
Less: LEGAL COST (1,363.00)
Less: Agent Commission (2,043.00)
Less: Accountancy fees (450.00)
DISPOSAL PROCEEDS (B) 141,144.00
NET GAIN (B - A) 40,365.00
CAPITAL GAIN CALCULATION
CHARGABLE
GAIN GAIN
01.08.13 to 31.03.15 Main home (CGT Tax free) 8,775.00 -
(£40,365 X 20m/92month)
01.04.15 to 01.06.20 Property was on rent 27,641.25 27,641.25
(£40,365 X 63m/92month)
01.07.20 TO 31.03.21 Last 9 months (CGT tax free) £3,948.75
(£40,365 X 9m/92month)
Letting Relief -
40,365.00 27,641.25
Chargable CGT for Mr B (before P.A) 50% 13,820.63
Chargable CGT for Mrs C (before P.A) 50% 13,820.63
SUMMARY
Mr B Mrs C
Chargable Gain 13,820.63 13,820.63
Less: EXEMPT ALLOWANCE (12,300.00) (12,300.00)
TOTAL TAXABLE @ 18% 1,520.63 1,520.63
TAX PAYABLE 273.71 273.71
Determination of Chargeable gain subject to Corporation tax
Software Ltd has accounting yearend as 31 March. The company has disposed its 2%
shareholdings on 28th February 2021 for sales proceed of £94,945 to Networked Plc. These
shares were acquired by the company on 15th July 2014 at a cost of £30,000. The indexation

factors between July 2014 and December 2017 is 0.086. The company also has brought forward
trading loss of £12800 and trading loss of current accounting year 31 March 2021 as £22,500.
Calculation of chargeable gains or capital gain taxes payable subject to corporation tax are as
follows:
Particulars Amount (£)
Sales Proceed 94,945
Less Indexation cost of shares -30,000
Chargeable gain 64,945
Less Indexation allowances (30000×0.086) -2,580
Profit on disposal of shares 62,365
Less: Current year of trading loss* (22,500)
Net Chargeable Gain £39,865
Chargeable gain tax rate is 19% for the Yearend 31 March 2021. Hence, the capital gain tax
payable for Software Ltd is as follows:
= £39,865 * 19% = £7,574.35
*Chargeable gains are not included in the computation of the trading loss, so if the company
has chargeable gains in the period in which the loss was incurred, these can be sheltered by
the loss.
Calculation of Adjusted profit for corporation tax purposes.
For the tax purpose, the profit and corporation tax are prepared based on the period of account.
The period of account is the period for which a company prepare its accounts. Normally this is
for 12 months, however it may be longer or shorter than this. Generally, this is the case when the
company starts to trade, cease to trade, or changes its accounting date. The maximum length of
period of account is 18 months. However the corporation tax return can only be prepared for
maximum of 12 months.

Financial Year: Financial year runs from 01 April to 31 March. The financial years determine
which corporation tax rates to use. At the moment, there is a single rate of corporation tax of
19% regardless of the size of the company. However, the government of UK is increasing the
corporation tax rate from 1 April 2023. The Corporation Tax main rate for non-ring fenced
profits will be increased to 25% applying to profits over £250,000. A small profits rate (SPR)
will also be introduced for companies with profits of £50,000 or less so that they will continue to
pay Corporation Tax at 19%. Companies with profits between £50,000 and £250,000 will pay
tax at the main rate reduced by a marginal relief providing a gradual increase in the effective
Corporation Tax rate.
Taxable Total Profit: A company’s total taxable profit broadly comprises its total income from
the various sources and its chargeable gain, after deduction of all available reliefs for losses,
qualifying charitable donations and non-trading interest.
Augmented Profit: The augmented profit defined by the taxable total profit of the period plus any
franked investment income received by the company in that period
Determination of Company’s residency: Under the UK’s domestics rules, a company is tax
residence in the UK if it is incorporated in the UK or centrally managed and controlled in the
UK. A company that is tax resident in the UK is generally subject to UK corporation tax on its
worldwide profits unless valid foreign branch exemption election is made.
Example: ABC Ltd is a trading company. The company’s accounting year is April to March and
therefore the company prepares the accounts for the financial year 01 April 20 to 31 March 21.
The profit and loss account of company with special notes for the year ended 31st March 2021
are attached in appendix.
Particulars Details Amount (£)
Operating Profit (as per the profit and loss statement) 711,475
Less: Interest Expense (67,200)

Add Accounting Depreciation Note 1 10,170
Add Business Entertainment Note 2 2,500
Trading profit before tax 656,945
Other Business Income:
Rental Income (on cash basis) Note 3 25,000
Loan interest income (on accrual basis) Note4 Note 4 0
Profit after adjustment of disallowable expenses (A) 681,945
Allowable deductions/ reliefs and allowances
expense:
Capital allowances on computer & other equipment Note 5 (£175,000)
Structure and buildings allowances on existing
freehold office building (£100,000 x 3%)
Note 6 (3,000)
Less Total business expense (B) (178,000)
Trading Loss Brought Forward (C) Note 7 (87,654)
Trading taxable profit of the business (A) - (B) – (C) 416,291
Note 1: The accounting depreciation of £10,170 has been included in the operating profit of
company. But this expense is related to accounting hence it will be added back to the operating
profit in order to compute the taxable trading profit of ABC Ltd. The depreciation expenses on
assets is allowable on the basis of tax written down value. In the example question, it was clearly
mentioned that the tax WDV of ABC Ltd plants and machinery as at 1st April 2020 was nil.
Hence, on this basis in the year 2020 -2021 the company is not allowable for any depreciation
expense deduction (Scarpa and Signori, 2020).
Note 2: The business entertainment is company’s cost and therefore it can be deductible in order
to find the net profit, however, this expense is not allowable for corporation tax purpose.
Therefore, it has been added back to the net profit to find the net taxable profit.
Note 3: Calculation of rental income on cash basis for taxation purpose:
Particulars Calculations Amount (£)

Rental Income (from October
to March)
£5000 * 5 months £25000
As per UK corporate taxation law and HRMC rule, the cash basis is the applicable rule of
accounting for the purpose of calculation of rental income of property.
Note 4: In the present example, the interest income is related to loan made for non-trading
purpose and in UK. Therefore, this is not prat of trading income and not taken here. However,
interest income from non-trading loan relationship is also subject to corporation tax at the same
rate.
Note 5: Capital allowances for plant and machinery.
In UK, the AIA is the most useful capital allowance for the assets qualify for plant and
machinery allowances. Qualify assets for plant and machinery allowances are computers, office
furnitures, tools and machinery. Under this rule, the corporates can claim 100% allowances on its
business spending on plant and machinery (Desai and Dharmapala, 2018). The annual limit for
the tax year 2021 was £1m which was extended till December 21 by finance bill 2021. (£200,000
from 01.01.2022 – gov.uk)
Note 6: The allowances for structure and buildings as per UK corporate taxation law indicate
that, if the company buy, build or lease a structure and construction, then the cost incur by
corporates towards the purchase, construction or renovation of building or structure is allowable
deduction. The corporates can claim 2% of cost from 29th October 2018 to 31st March 2020 and
3% from 1 April 2020 onwards.
However, claiming allowances for structure and building every year at the rate 2% will cause
issue for the corporates at the time when such building and structure being sold. This will result
into the increase in capital gain as well as corporate tax for corporates in UK.
Note 7 : The company has brought forward trading loss of £87,654. This loss can be offset
against the total profit.

Calculation of corporation tax liabilities
Trading taxable profit of the business £416,291
Corporation tax rate 19.00%
Corporation Trading Tax liability (A)
£416,291 * 19%
£79,095.29
Capital Gain on sale of shares £62,365
Capital gain tax rate 19%
Corporation capital gain tax liability (B) £62,365* 19% £11,849.35
Non-trading Loan Relationship Interest
(C)
£8,100 * 19% £1,539
Total Corporation Tax liability (A) + (B) + (C) £92,483.64
In United Kingdom, corporate pays corporate tax at the rate 19% on the taxable trading profit or
adjusted profits for corporate tax purpose. Further, if the corporate tax payer of UK sell its shares
they are liable to pay capital gain tax on gain. The capital gain tax rate for the purpose of
corporate tax purpose in UK is 19% of the chargeable gain or profit on disposal of capital assets.
Hence, on the basis of this calculation, it has been analysed that in the present example, ABC Ltd
need to pay the corporate tax of £109,137.90 in the year 2021 (McGaughey and Raimondos,
2019).
The corporation tax return needs to be submitted within 12 months after the accounting period it
covers. In above example, ABC Ltd will have to submit the corporation tax return by
31.03.2022. There is a penalty charged by HM Revenue & Customs if the corporation tax return
is not filed by the deadline. (hmrc.gov.uk). The amount of penalty is dependent on how late the
return was filed.
1 Day £100
3 months further £100
6 months HM Revenue and Customs (HMRC) will estimate your Corporation Tax bill and
add a penalty of 10% the unpaid tax
12 months Additional 10% of any unpaid tax

There is a separate deadline for corporation tax payment. It’s usually 9 months and one day after
the end of the accounting period. In above example, ABC Ltd will have to pay the corporation
tax £92,483.64 by 1 January 2022.
The HMRC may charge interest if the tax not paid on time. If you pay the tax earlier than
deadline then the HMRC pay you interest.
Please refer to completed self-assessment Corporation Tax Return CT600 attached.
TASK 3
Describing the registration and administration procedures for VAT
VAT is basically the value added tax that refers to the consumption tax on goods and service
that is levied at each stage of the supply chain where value is added from the initial production to
the point of sale (Jones, 2021). The business must register the business for VAT with HM
revenue and customs if its taxable turnover in the last 12 months exceeds £85,000 registration
threshold limit or the expected turnover to go over £85,000 in the next 30 days. The business
must also register regardless of its turnover if the business or its owner is based outside of the
UK and supply any goods or services to the UK.
The business must register for VAT if by the end of any month, its turnover exceeds the limit of
£85,000. The registration process must be completed in 30 days of the end of the month when
the turnover went over the threshold. The effective date of registration is the first day of the
second month after the business cross the threshold limit. For example, Between 1 April 2021
and 31 March 2022, VAT taxable turnover is £100,000. That’s the first time it has gone over the
VAT threshold. The business must register by 30 April 2022. The effective date of VAT
registration is 1 May 2022.
Generally, the business cannot register for VAT regardless of turnover if the taxable turnover is
exempt for VAT. For example, doctor , dentist (unless they also sell for vatable product like
toothbrush) insurance company, finance company etc are exempt from VAT. therefore they
cannot register for VAT.

The business can usually register for VAT online. This can be done by using an agent account
and visiting the online platform which is also important to submit the VAT return to HM
Revenue & Customs. Alternatively, you can appoint an accountant (agent) to submit your VAT
returns and deal with HMRC on your behalf. You must register by post using VAT1 form if you
wish to apply for a registration exemption, joining the agricultural flat rate scheme OR
registering the division or business units of a body corporate under separate VAT numbers.
Register by post using:
 form VAT1A if you’re an EU business ‘distance selling’ to Northern Ireland
 form VAT1B if you import (‘acquire’) goods into Northern Ireland worth more than
£85,000 from an EU country
 form VAT1C if you’re disposing of assets and you have claimed Directive refunds on
them
The documents which are required for registration purpose includes National insurance number,
tax identifiers, certificate of corporation along with details, business bank account, information
on associated businesses within last two years. The steps that can be followed for the online
registering includes going to the portal, sign up for a new government gateway account, after
successful sign up the attentions should be paid on starting the process as guided on HMRC
website, entering the relevant details & applying for VAT registration (Angeli Pezzato, 2019). In
addition to this, it will provide the assistance in having the VAT registration number to user. It
will give login details which are helpful in having verifying the email address and other details
so that VAT registration number is generated. This all can be exerted by appointing an
accountant or agent so that return on your behalf with HMRC can be done.
Once the VAT application is accepted, the HM Revenue & Customs issue a VAT number which
is of 9 digits and unique for each business. The business must have to include this number on all
their sales invoices to customers. The HMRC will also send information about when to submit
your first VAT return and payment and confirmation of VAT registration date – VAT certificate.
You can then start charging and reclaiming VAT from this date.The VAT is administrated by
HM revenue and customs that pay attention having the significant information regarding the
income so that tax regrading details registered account can be derived. This done by the
particular mentioned authority that focuses on VAT return that is usually due every 3 months.

AC3M1 – Explaining why an organisation choose to voluntarily register for VAT along with
advantages and reason for organization deregister
There are different kinds of the advantages which is obtained by having the voluntary
VAT registration that involves claiming VAT, adds credibility, focusing on business activities
effectively by monitoring its performance, etc. Pr-registration input tax claims can be done by
the business before 6 months of its registration on services, 4 years on goods and up to 10 years
on capital goods. he business may get fined if do not register.The business may also register for
VAT voluntary even though the taxable turnover is below the registration threshold £85,000.The
voluntary deregistration helps in having the advantages such as having inclusive prices,
attracting more customer, etc. It usually takes 3 weeks for HMRC to confirm your cancellation
and the official cancellation date. This is either the date when the reason for your cancellation
took effect (for example, when you stopped trading), or the date you asked to cancel. HMRC will
send confirmation to your VAT online account or through the post if you do not apply online.
Once the business is deregistered, you must stop charging VAT from the cancellation date.
You’ll need to keep all VAT records for 6 years. HMRC will automatically re-register you if
they realise you should not have cancelled. You’ll have to account for any VAT you should have
paid in the meantime.
AC3D1 - nature of types of supply of goods and services and impact this has on tax claims
along with imports and exports to or the EU and other countries and their effect on VAT
The input tax claim is usually claimed by input VAT that they have been paid with
HMRC which aids in having the significant ability to different categories of supplier. There are
basically three categories of the suppliers that can be made by the VAT vendor which includes
standard, zero and exempted suppliers. Zero rate suppliers involves those suppliers who are
having VAT tax rate at the zero percent. For example, bread, milk, egg, vegetable etc. Exempt
suppliers comprises the sale that are completely excluded or exempted from the scope of VAT,
for example, medical service, education service, Betting and gaming, Lottery ticket sales,
insurance service, medicines etc. Standard rated suppliers are taxable in nature which involves
input tax that can be recovered. The rate of standard VAT is mostly at 20%, however some items
are charged at 5% for example, Gas and electricity for residential use or non-business use by

charity, heating oil for residential use, nicotine patches and gum, Air source heat pumps, central
heating and hot water controls, insulation, solar panels, children safety seats etc
(https://www.gov.uk/guidance/rates-of-vat-on-different-goods-and-services). These are the
crucial principles which are followed in order to categorize between this mentioned type of the
suppliers. Input tax claim is not available for the zero-rated suppliers as there is no bar on
availing credit of taxes paid on input side for making. On the basis of this it can be identified that
there are different suppliers which has distinct requirements to fulfill. On this way it can be
identified that important and exports impact th tax claims
The business must deregister for VAT if they are no longer eligible to be VAT registered. For
example, the business stop trading or making Vatable supplies and/or the business join a VAT
group. You can also ask HMRC to deregister your business for VAT if your vatable turnover
falls below £83,000. You can deregister for VAT online or sending a form VAT7 by post to
HMRC (Wu, Chen and Huang, 2022).
Once the business is deregistered for VAT, the final return needs to be submitted till the date of
cancellation. The business must account for any stock and other assets held on this date if VAT
was reclaimed previously on this and the total VAT due on these assets is over £1,000. The final
VAT return must be submitted within 1 month unless you are on cash base VAT in which case
the deadline is 2 months.
Computing tax under VAT schemes for small business organisations
There are basically three types of the VAT schemes which are available for the small and
medium enterprises in UK (Christl, Papini and Tumino, 2022). This includes;
A) Point of Sale in which you identify any record the VAT at the time of sale. For example, the
business sold £12,000 worth of goods at 20% rate and £1,000 worth of goods at 5% rate. In this
case VAT will be calculated as below.
£12,000 x 20/120 = £2,000
£1,000 x 5/105 = £47.62
Therefore, total output VAT will be £2047.62.
B) Apportionment in which you buy goods for resale. For example, the business purchases goods
of £12,000 at 20% VAT rate, £1,000 at 5% VAT rate and £500 at 0% VAT rate. The total sales
are £15,000. The out put VAT will be calculated as below.

(£12,000/£13,500) x £15,000 = £13,333.33 x 20/120 = £2,222.22
(£1000/£13,500) x £15,000 = £1,111.11 x 20/120 = £52.91
Therefore, the total output VAT will be £2,275.13
C) Direct Calculation in which you make small proportion of sales at one VAT rate and the
majority at another rate. The business needs to calculate the expected selling price of its minority
or majority goods, use whichever is easier. For example, your total sales are £12,000. Deduct the
expected selling price of zero-rate goods £2,000 and reduce rate 5% goods £500. The remaining
goods £9,500 are standard rated. So out put VAT will be calculated as below.
£9,500 x 20/120 = £1,583.33
£5,00 x 5/105 = £23.81
Therefore, the total output VAT will be £1,607.14
In addition to this, small organizations also use flat rate, cash & annual accounting scheme.
There are different types of the sectors which has the distinct form of rates that aids in computing
tax under VAT scheme in precise manner.
Tax under flat rate:
The difference between the VAT charged and VAT paid by the business is the amount of VAT
the business pays or reclaims from the HMRC. Generally the business pays or charges vat at
20%. Under the Flat Rate Scheme, you pay a fixed rate of VAT to HMRC and you keep the
difference between what you charge your customers and pay to HMRC. Under this scheme,
while you are paying reduced rate VAT to HMRC, you cannot reclaim the VAT on purchase and
other expense except for certain capital assets £2000 or over. To join this scheme, the turnover of
the business must be £150,000 or less (exc. VAT) and the joining application must be sent to
HMRC. The business also get 1% discount if you are in your first year as a VAT registered
business. The VAT flat rate is decided by the type of business you do. You may pay a different
rate if you only spend a small amount on goods and other expenses. The business normally pays
16.5% flat rate VAT if they are classified as “limited cost business”. The limited cost businesses
are those who spend less than either 2% of their turnover or £1000 a year (if costs are more than
2%) on goods and other expense.

For example, ABC Ltd is providing information technology services in which bill formulated for
customer is £1,000 adding the VAT at 20% to make total of £1,200.
Under the flat rate scheme, this type of business falls under VAT Flat Rate of 14.5%. Now, if the
company does not fall under the “limited cost business” then the VAT calculation will be as
below.
Out Put VAT = £1,200 x 14.5% = £174
The company collected VAT at 20% £200 but only pay £174 to HMRC. The difference of £26 is
VAT gain for the company under the flat rate VAT scheme. Further if the company is in its first
year of VAT registration then the company further gets 1% discount. This means company will
only pay £1,200 x 13.5% (14.5% - 1%) = £162 to HMRC leaving VAT gain as £38.
If the company is classified as “limited cost business” then the VAT Flat Rate will be used as
16.5% which will reduce the VAT gain.
Cash accounting scheme
This scheme focuses on permitting to achieve the account for VAT on sales on the basis of the
payments that business has received rather than on tax invoices that are issues by the
organization. This permits to gain the ability to have effective cash flow as there is no
requirement to pay to HMRC until the customer has paid to business. There is eligibility criteria
for using this particular method by the small organization which require it to focus on having
estimating vatable sales for the next 12 months must be no more than 1.35 million.
For example- Business issues an invoice to customer for £1,000 + Vat which makes the total of
£1,200 that is charged at the standard rate of 20% so that business is required to pay the £200 to
HMRC. In this case, the transaction has been conducted on 1st February, but the payment is paid
on 1st April. Assuming, VAT return is being submitted quarterly. There are four quarters in which
the VAT is paid to HMRC by the specified small organization that comprises 31st March 30th
June, 30th September, and 31st December in every year. As the particular payment is received on
the 1st April so fell into the quarter that ends on 31st June even though the invoice was issued in
February which falls into the quarter that ends on 31st March.
Annual accounting scheme
Generally, VAT registered business submit their VAT returns and payments to HMRC 4 times in
a year. In this method, the business make advance payment of VAT bill based on last VAT

return or estimated VAT if first year of VAT registration and submit only 1 VAT return per year.
Each payment is either 10% of your estimated VAT bill (monthly payments) or 25% (quarterly
payments). The amount is based on previous VAT returns (or estimated if you’re new to VAT).
The business is qualified to join this scheme if its turnover is up to 1.35 million. The business
cannot join this scheme if they have left the scheme in the last 12 months or the business is part
of a VAT registered division or group of companies or VAT returns and payments are not up to
date or the business is insolvent. The business must have to leave the scheme if vatable turnover
exceeds or likely to be exceeded more than £1.6 million a the end of the annual accounting year.
For example - Business is having VAT period which starts on 1 May and ends on 30 April. In
this case the VAT return will be due after end of the year and must be submitted within 2 months
by 30 June. The business must make advance payments towards the VAT bill as per the below
deadline.
Monthly – Due at the end of month 4, 5, 6,7,8,9,10,11 and 12
Quarterly – due at the end of month 4, 7 and 10
Final payment – Within 2 months of month 12
On the basis of this it can be interpreted that these are VAT schemes which are available for the
small organizations. It is helpful in overcoming the VAT related requirement for the operating in
the particular sector which benefit the business to avoid any irrelevant obligations that can arise
due to not complying with the rules and regulations of HMRC.
Providing examples of calculation of VAT liabilities
VAT liability refers to the any money which is owed to HMRC authority that is calculated by
totalling the amount of VAT collected as business done by reducing the credits. In addition to
this, value added tax on commodities and sales are refers as a liability to the companies. On the
other side, VAT on the purchases are referred as an asset because it can be claimed backed by
the particular registered business. VAT rate as per the standard, reduced and zero are 20, 5 &
0% respectively.
Example:

ABC Ltd is a company providing software development and consultancy services. The company
is incorporated in the UK. The company has year end 31st March. The company files quarterly
VAT return to HMRC. The company’s VAT quarter is June, September, December and March.
Company’s annual turnover is more than £150,000 and below 1.35m and therefore they use cash
base VAT scheme. During the period 01 January to 31 March, company’s trading activities were
as below.
 Sales excluding VAT to UK companies £260,000
 Sales excluding VAT to overseas companies £180,000
 Rent paid including VAT £2,400
 British Telecom bill £530
 British Gas bill £560
 Software purchased £1,500
 Computer equipment purchased £2,500
 Paid to VAT registered UK based subcontractors £30,000
 Paid to subcontractor based in USA £12,000
 Insurance paid £830
 Penson paid for the director £1,200
 Bank charges paid £160
 Wages paid £18,000
 Business entertainment £450 and Staff party £1,060

Calculation of VAT payable / receivable to/from HMRC
DETAIL NET OUTPUT OUTPUT VAT
UK sales £260,000 X 20% £260,000 £52,000
Overseas sales £180,000 x 0% (out of scop of VAT) £180,000 £0
Total Output VAT (A) £440,000 £52,000
NET INPUT INPUT VAT
Rent £2400 x 20/120 £2000 £400
British Telecom £530 x 20/120 £441.67 £88.33
British Gas £560 x 20/120 £466.67 £93.33
Software £1,500 x 20/120 £1,250 £250
Computer Equipment £2,500 x 20/120 £2,083.33 £416.67
UK Subcontractors £30,000 x 20/120 £25,000 £5,000
USA subcontractor £12,000 x0%(out of scop of VAT) £12,000 £0
Insurance £830 x 0% (exempt) £830 £0
Pension £1,200 x 0% (not subject to VAT) £0 £0
Bank charges £160 x 0% (exempt) £160 £0
Wages £18,000 x 0% (not subject to VAT) £0 £0
Business entertainment £450 x 0% (VAT cannot be
reclaimed)
£450 £0
Staff party £1,060 x 20/120 £883.33 £176.67
Total Input VAT (B) £45,565 £6,425
NET VAT TO BE PAID TO HMRC (A-B) £45,575
The above transaction are recorded on sample VAT return VAT100 enclosed herewith.
On the basis of the above calculation it can be interpreted that VAT liability is calculated by the
organization through following the formula such as VAT paid- VAT collected. This aids in
ascertaining the particular liability that it is owed by the firm to HRMC. On the basis of the
above calculation it can be interpreted that firm is required to pay VAT of £45,575 to HMRC.
Non deductible input tax refers to the VAT payable by purchaser which is not allowed to be
deducted from his own VAT liability (Cnossen, 2022). In the above case, business entertainment
expenses.

Discussing VAT penalties that can arise
In order to conduct the operational practices in UK it is important for the firm to pay VAT
meeting his eligibility criteria. HMRC is one of significant authority in UK that pay attention on
having the appropriate monitoring and controlling of the practices that are required to be
understood by the organizations for having smooth functioning. In absence of not coordinating
with the requirements of HMRC regarding value added tax (VAT deadlines and penalties, 2020).
There are different types of the consequences which are needed to be understood by the
organization in order to have the appropriate functioning so that reliable actions can be taken to
get smooth processing. There is fix time for paying the VAT amount and filling VAT return to
HMRC. If the business failed to comply with the deadline then the HMRC may issue warnings
and/or penalties. If the businesses miss the deadline for submitting its VAT return, HMRC will
record a “default” on the account. Once the business is defaulted, they will begin a 12-month
surcharge period. The HMRC normally send a VAT notice of assessment of tax informing the
business how much VAT they think the business owes. If the assessment is too high, send a
correct VAT return and VAT payment. If the assessment is too low you need to either tell
HMRC within 30 days or send a correct VAT return and VAT payment. If the business fails to
take this action, they may be issued with a penalty by HMRC.
On the first time late VAT, the business enters in “surcharge period” of 12 months. The
surcharge is the amount to pay on top of VAT bill. Generally, the business does not pay
surcharge if it is default first time. If default again within 12 months of surcharge period, the
period is extended for another 12 months. The business may also have to pay additional amount
on top of the VAT bill.
If the business is late in filling a VAT return but pay VAT bill in full by the deadline or there
was no VAT due or VAT repayment wad due then the business will not have to pay any
surcharge

The amount of surcharge and/penalty is dependent on the turnover of the business and how many
time the business was late in payment. This has been summarised as below.
Default within 12 months Annual turnover > £150,000 Annual turnover < £150,000
2nd NIL 2% of VAT bill. Nothing to
pay is this amount is less than
£400
3rd 2% of VAT bill. Nothing to pay
if this amount is less than £400
5% of VAT bill. Nothing to
pay is this amount is less than
£400
4th 5% of VAT bill. Nothing to pay
is this amount is less than £400
10% or £30 whichever is
higher
5th 10% or £30 whichever is higher 15% or £30 whichever is
higher
6 or more 15% or £30 whichever is higher 15% or £30 whichever is
higher
Penalty: HMRC can charge a penalty to the Business of up to:
 100% of any tax under-stated or over-claimed if you send an inaccurate return
 30% of an assessment if HMRC sends one that’s too low and the business does not tell
them it’s wrong within 30 days
 £400 if you submit a paper VAT Return (only certain people are allowed to submit a
paper VAT Return
There’s no penalty for a late nil return (where you have nothing to declare).
CONCLUSION
After summing up the above information, it has been concluded that the taxation system of UK
helps the taxpayer to pay tax without any difficulty. The tax revenue of UK is collected by three

level such as central, devolved and state government with the aim of using the same for the
growth of economy. The report has also concluded the self assessment tax calculation as well as
self-assessment return. Further, the report has also discusses the UK tax law in details and its
implications for incorporated as well as unincorporated businesses. In addition, detail
corporation adjusted profit and corporation tax liabilities has been computed in the report with
the use of practical examples. Lastly, the report has discussed the registration and administration
procedure of VAT and compute the tax under the VAT scheme. The detail practical example of
calculation of VAT liabilities has been computed with the use of own choice data. In addition,
the report has been also covered the discussion of VAT penalties that could be arisen at the time
of non-compliance.

REFERENCES
Books and journals
Langenmayr, D. and Liu, L., 2020. Where does multinational profit go with territorial taxation?
Evidence from the UK. Evidence from the UK.
Holland, K., Lindop, S. and Abdul Wahab, N. S., 2021. How do managers and shareholders
respond to taxation? An analysis of the introduction of the UK real estate investment trust
legislation. Abacus.
Liu, M. L., 2018. Where does multinational investment go with territorial taxation? Evidence
from the UK. International Monetary Fund.
Lenoel, C., Matsu, J. and Naisbitt, B., 2018. International evidence review on housing
taxation. Final report, UK Collaborative Centre for Housing Evidence, 1.
Steenbergen, J. and Weber, D., 2022. The Potential Relevance of the CJEU Case Law on Group
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Appendix
Note £
Operating Profit 1 £711,475
Other Income
Rental Income 2 £25,000
Loan Interest Receivable 3 £8,100
Profit on disposal of shares 4 £62,365
Interest payable 5 (£67,200)
Loss Brought forward and offset against Trading Profit 6 (£87,654)
Profit before taxation £652,086
Notes:
1. Operation Profit
The operating profit calculated after deduction of wages £230,000, pension cost £45,670,
professional fee £18,600, telephone cost £2,170, Stationery and printing £2,866,
Travelling £11,630, Depreciation £10,170 and Business entertainment cost of £2,500.
2. Rental Income
ABC Ltd let out a warehouse surplus to its requirements on 01 October 2020, the
monthly rent of £5,000 being payable in advance on the first of each calendar month. The
rent due on 1 March 2021 was not received due to the business failure of the tenant. Half
of the unpaid rent was received on 10 April 2021 and the rest is irrecoverable.
3. Loan Interest Receivable
The Loan was made for non-trading purposes on 1 July 2020. Loan interest of £5,600
was received on 31 December 2020 and interest of £2,500 was accrued at 31 March
2021.
4. Profit on disposal of shares
The profit on disposal of share in Network Plc on 28.02.2021 for proceeds of £94,945.
The shares were acquired on 15 July 2014 at cost of £30,000. The indexation factors is
0.086. The net chargeable gain for this transaction was £62,365
39

5. Interest Payable
The interest payable on the loan taken by the company for the trading activities is
£67,200 for the yearend 31.03.2021.
6. ABC Ltd has loss brought forward from the previous year as £87,654 which can be offset
against the trading profit only.
Additional Information
Investment Income
ABC Ltd has received a net dividend distribution of £68,680 from its share in the associate
company.
Plant and Machinery
The tax written down value of ABC Ltd’s plant and machinery as at 01 April 2020 was NIL. On
1 September 2020, the company purchased computer and other equipment at a cost of £175,000.
During April 2020, the company had an extension constructed adjacent to its existing freehold
office building which is used by the company’s employee as a staff room. The total cost of
£100,00 for the extension is made up as follows:
£
Integral to Building
Building cost of extension 61,000
Heating system 3,600
Ventilation system 4,600
Furniture & Fittings 30,800
---------
TOTAL 100,000
======
40